I Will Teach You to Be Rich: No Guilt. No Excuses. No B.S. Just a 6-Week Program That Works.

by Ramit Sethi

Savings Accounts

And because you’ll be primarily sending money there, not withdrawing it, what does it matter if it takes three days to get your money?

Capital One 360 Savings

It lets you create virtual sub-savings accounts, in which you can specify savings goals like an emergency fund, wedding, or down payment for a house.

You can also set up automatic transfers to other accounts

There are no fees, no minimums, and no tricky up-sells or annoying promotions.

Ally Online Savings Account

Set a 60-day calendar reminder to close the old account.

Avoiding Monthly Fees

Almost All Bank Fees Are Negotiable

By opening an investment account, you give yourself access to the biggest money-making vehicle in the history of the world: the stock market.

The Ladder of Personal Finance

Mastering Your 401(k)

401(k) Benefit #1: Using Pretax Money Means an Instant 25 Percent Accelerator.

401(k) Benefit #2: Your Employer Match Means Free Money.

401(k) Benefit #3: Automatic Investing.

Common Concerns About 401(k)s

What happens if I really need my money?

If you withdraw money before you’re 591/2 years old, you incur severe penalties, including income taxes and an early-withdrawal penalty of 10 percent.

Will I have to pay taxes when I withdraw my money?

Yes. Although your 401(k) is tax-deferred, it’s not tax-free: When you start withdrawing after age 591/2, you’ll have to pay taxes. But don’t feel bad about paying these taxes, since your money will have been compounding at an accelerated rate for the last thirty to forty years. Because you agreed to invest your money in a 401(k), you were able to put in about 25 percent more money to grow for you.

What if I swit...

Move it to an IRA.

What about a Roth 401(k)?

Why would you do this? If you expect your tax rates to be higher later in life, a Roth 401(k) is a great option for you. Two unexpected benefits here: If you use a Roth 401(k), there are no income restrictions, so if you earn too much to contribute to a Roth IRA, a Roth 401(k) is a great way to get after-tax benefits.

A Roth IRA is another type of retirement account with significant tax advantages. It’s not employer sponsored—you contribute money on your own.

One of the benefits is that it lets you invest in whatever you want. Whereas a 401(k) has an array of funds that you must choose from, a Roth IRA lets you invest in anything you want: index funds, individual stocks, anything.

A second difference has to do with taxes: Remember how your 401(k) uses pre-tax dollars and you pay taxes only when you withdraw money at retirement? Well, a Roth IRA uses after-tax dollars to give you an even better deal. With a Roth, you invest already-taxed income and you don’t pay any tax when you withdraw it.

Roth IRA Restrictions

you’re penalized if you withdraw your earnings before you’re 591/2 years old. Notice that I said “earnings.”

you can withdraw your principal (the amount you actually invested from your pocket) penalty-free.

There are also exceptions for down payments on a home, funding education for you or your partner/children/grandchildren,...

Important note: You qualify for these exceptions only if your Roth IRA has been ope...

if you make more than $135,000 per year, there are restrictions on how much you can contribute to a Roth IRA (and over a certain income, you’re not eligible to open one at all).

How to Open a Roth IRA

We’ll focus on discount brokerages like Vanguard because they charge dramatically smaller fees than full-service brokerages like Morgan Stanley.

Recommended Discount Brokerages

However, their target date funds still have higher expenses than Vanguard.

Factors to Consider When Choosing Your Investment Brokerage

What About Robo-Advisors?

While they are good options, I don’t think they are worth the costs and I believe there are better options. As an example, I specifically chose Vanguard and have stuck with them for many years.

Ease of use.

Low fees.

Marketing claims.

But the real issue here is “Are they worth it?” My answer is no—their fees don’t justify what they offer.

HSAs: Your Secret Investing Weapon

Health Savings Account

HSAs let you set aside pre-tax money to pay for qualified medical expenses, including deductibles, copayments, coinsurance, and some other health-related expenses.

You contribute money to your HSA account. This money sits in your HSA, which effectively functions like another checking account—with a few special exceptions. 2. You get a debit card that you can use for “qualified medical expenses,” including bandages, chiropractors, eye exams and glasses, and prescriptions. (This is just a small handful of the health-related expenses you can pay for with your HSA card. To see them all, search for “HSA eligible expenses.”) 3. Why does this matter? Because the money in your HSA is tax-free, meaning you get to spend money before you pay taxes on it—which can be a discount of 20 percent or more.

Forget budgeting. Instead, let’s create a Conscious Spending Plan.